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Navigating the Complexities of Medical Director and Other Administrative Arrangements

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Navigating the Complexities of Medical Director and Other Administrative Arrangements

Published: 03/13/2018 | Authors: Berta Narohna & Barbara Landy, MBA, MHS, FACHE

doctor handshake with a patient at doctors bright modern office in hospital-3Physicians continue to be involved with the management and/or administrative oversight of many health care operations, including not only acute care hospitals, but group provider practices, insurance products, the operation of foundations, and an even widening involvement in programs involving the measurement and achievement of specific outcomes which may be tied to compensation.  Accordingly, health care organizations continue to engage physicians in various levels of participation with health care organizations on a compensated basis. Such positions can vary from occasional service on specific purpose committees to ongoing part time or quasi full-time obligations.  As HealthCare Appraisers (“HAI”) seeks to address health care entities’ compliance concerns with these types of arrangements, including the Federal Anti-Kickback Statute and its related regulations, as well as the Stark Law and its related regulations and government guidance, HAI provides both general consulting guidance as well as comprehensive assistance in determining fair market value (“FMV”) compensation.

The approach to valuing medical director/administrative services arrangements is a detailed process, given the unique characteristics of each arrangement. As such, it is of great importance for health care valuators to have a clear understanding of the specific arrangement.  Similar to any other compensation valuation arrangement, determination of the FMV for many compensated administrative arrangements is based in part on a certain subjectivity. Unlike clinical compensation data for most physician specialties, only limited data exists that would be applicable for certain medical director/administrative positions. In some cases, there is no directly comparable, applicable data. In addition, given the unique aspects and complexity involved with each medical director/administrative position, duties for similar positions likely vary from hospital to hospital, making comparison among the specific positions and market data even more challenging.

Our Approach

Given our extensive knowledge in valuing compensated medical directorship and administrative services arrangements, we believe that many hospitals and other health care organizations have a legitimate need to engage and compensate physicians for providing these services in connection with overseeing the operation of various health care programs. As such, determining the commercial reasonableness of the total time requirement under the arrangement is generally the starting point for analyzing compensated medical director/administrative services arrangements.  Such an approach considers a review of the specific duties and projected time indicated to perform those duties and a comparison to current market data compiled and published by various prominent administrative services surveys.

Similar to many other compensation valuation arrangements, determination of the FMV for medical directorship/administrative services arrangements can be quite challenging, and as stated earlier, can involve a significant amount of subjectivity.  Other than administrative services which require a significant amount of clinical activity, the compensation earned by a physician in his or her specialty of practice might not be directly comparable to the FMV of compensation for medical director/administrative duties.   While more often than not the compensation for administrative services is lower than that for the provision of clinical services, this is not always the case. However, analysis of professional services compensation provides a useful benchmark in analyzing the appropriate compensation for administrative duties.  Therefore, as a starting point in our analysis, we review physician salary market data provided by prominent surveys for the specialty required for the specific position, identifying the physician specialty that would be the most comparable to the administrative duties provided under the specific position, and make certain adjustments, if necessary.  After determining a range of compensation, we consider the additional costs and expenses incurred in performance of the administrative services required under the specific agreement, adjusting the compensation range to reflect these elements. 

In making our initial conclusions we review and compare the FMV compensation for clinical services which was earlier determined, to physician medical director/administrative services compensation data compiled and published by reputable sources, and then synthesize these values to derive a range of FMV compensation for the services contemplated.  Lastly, we consider whether any other adjustments to the analysis are required, after a repeat review of duties, and upon consideration of the physician’s qualifications represented by the health care organization.  Such adjustments may take into account such factors as (i) the position is reginal in nature, (ii) the position requires the provision of services at several hospital campuses, and /or (iii) the need for the services are very short-term in nature (e.g., in the case of start-up service line program).

Arriving at appropriate FMV compensation for physician medical director/administrative arrangements is a key factor in both ensuring effective operation of various hospital programs by well qualified physicians, as well as complying with state and federal regulations. Given the challenges involved in comparing a physician specialty with the duties required under a specific administrative services arrangement, a thorough analysis and understanding of the services is essential. Since our commencement in 2000, HealthCare Appraisers has developed extensive knowledge surrounding medical director/administrative services arrangements through complex valuation assignment requests from thousands of health care facilities nationwide.

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